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June 7, 2011

Why Personal Financial Planning Can’t Be Commoditized

At the FPA Retreat this year, I heard a fair amount about the dangers of financial planning becoming a “commodity.” Apparently, many industry gurus today think that as competition in the advisory world heats up—particularly from the growing ranks of breakaway brokers—that financial planning will become more like, say, a barrel of oil, where one looks pretty much like any other. In this scenario, financial advice would become a volume game, with planners increasingly turning to technology to leverage the managing of larger and larger numbers of clients.

As you might expect, I take a somewhat different view. In fact, I believe the advisory world is moving in exactly the opposite direction. The number of financial advisors really hasn’t changed much in the past five years. Sure, the brokerage industry lost some folks around the market bottom a couple of years ago, but for the most part, those brokers who did leave the wirehouses became independent advisors, which is a net wash on the totals.

The real lesson from the migration of breakaway brokers isn’t in the numbers, it’s in the reason that brokers broke away: to better connect with their clients. They wanted to offer more personalized, more client-oriented service. In other words, they want to become less of a commodity, rather than just another Merrill Lynch or Morgan Stanley broker. It’s true that their firms were experiencing some business setbacks, but that only served to increase the brokers’ desire to have their own brand and their own relationships with clients.

It’s true that independent advisors were largely shielded from all that unpleasantness on Wall Street, so many of you probably didn’t feel the same urgency to strengthen your connection with your clients. But that only proves that you all have very strong connections with your clients from the beginning. That’s the whole point of independent advice. Sure, we talk a lot about the lifestyle and control that comes from owning your own firm, but the true bottom line is that independent advisors are independent in order to have stronger, more client-oriented relationships with their clients.

Over the years, I’ve worked with a lot of financial advisors and met a whole lot more. Virtually to a person, the advisors that I know love their clients, and their clients love them; they love the care, and the personal attention and the ability to pick up the phone to reach their advisor when they need them. Sure, everyone gets the occasional client who’s a pain in the kiester, but they only prove how rare it is not to like a client.

The point is that independent advisors are successful precisely because they are real people, not commodities. As long as they continue to connect with their clients in a human way, they will be increasingly successful in an otherwise increasingly commoditized world.